IMF: Despite Challenges, Global Economic Growth Expected to Improve

Head of the International Monetary Fund (IMF) Christine Lagarde stated on Sunday (06/07) that the institution expects improved global economic growth in the second half of 2014 as well as in 2015 supported by the assumption that China, the world’s second-largest economy, will expand between 7.0 and 7.5 percent in 2014, thus not showing a sharp slowdown. Later this month, the IMF will release its new global economic outlook. Lagarde said that forecasts will be slightly different from forecasts made in the April edition.

However, despite global activity picking up, Lagarde warned that the momentum might be less strong than expected due to modest economic recovery and weaker investment. According to the IMF, central banks’ accommodative policies (in an attempt to boost local growth) only have limited impact on global demand. Countries should also focus on implementing policies aimed at boosting growth by investing in infrastructure, education and health (provided that debt levels remain sustainable).

Regarding economic growth in the USA, Lagarde said that a sensible rebound has been detected in the world’s largest economy after a disappointing first quarter in 2014. She advises the US central bank (Federal Reserve) to continue a gradual and orderly shift in monetary policy (the further winding down of the quantitative easing program and future US interest rate hikes) to avoid global shocks, particularly in emerging economies.

Meanwhile, the Eurozone is slowly coming out of recession. According to Lagarde, it is crucial that countries in the Eurozone continue to carry out reforms, including the completion of the banking union.